FALK ISSUES TOUGH BUDGET REQUIREMENTS
May 22, 2003
Topf Wells, 266-9069
County Executive
Saying that Dane County faces big, unprecedented cuts from the state budget, Dane County Executive Kathleen Falk today issued strict budget requirements for the 2004 Dane County budget.
The state budget problems affect Dane County. We face about $6.4 million in cuts and those cuts will probably get worse. It’s as tough as we thought it would be. With over $6 million of increased basic costs to continue county government next year, these cuts create a serious budget challenge. In order to preserve the county’s fiscal health, we must plan to reduce our spending and focus on delivering key services to our citizens. Today, I am directing department directors to achieve $12 million in budget cuts when they recommend department budgets to me at the end of the summer. While exceedingly difficult, these cuts are necessary in my judgment to enable Dane County to cope with the huge losses of state revenue,” said Falk.
She continued: “Our budget is always challenging. Often at this point in the year, we face a challenge of several million dollars because of growing demand for services, increasing personnel costs, and stagnant state and federal revenues. What is different and really unprecedented is the drastic cut in crucial state revenues, especially in shared revenue and in human service revenues. While currently those cuts are about $1.4 million for this year and $6 million for next, I am concerned the Legislature will authorize more cuts or some projected state revenues will fall short.”
Falk noted that while the state cuts are the main reason in requiring department heads to make the $12 million in cuts, she also factored in some basic costs to continue county government such as increased debt service ($2 million) and increased liability costs ($300,000). She noted that the continuation of the county’s basic compensation system (salaries and benefits) without any Cost of Living Adjustment (COLA) or general raise will cost about $4.6 million next year.
Falk said that she has assigned each department a specific amount of cuts to propose. Most of the state cuts were apportioned across county departments, with departments such as the Human Services Department, allocated specific state cuts in specific programs.
“Our department heads now face an extraordinarily difficult job in recommending cuts while preserving the key services Dane County citizens expect and depend on,” said Falk. “My staff and the Department of Administration will work closely with department heads to meet these challenges. I will also be working with our great Dane County employees this summer to attempt to identify efficiencies that can make these cuts less painful.”
Falk concluded: “I will review the department directors’ proposals carefully as I work on the budget in detail from July to October 1, when I submit the budget to the County Board. Unfortunately, due to additional state budget cuts or the effects of a still weak economy, our budget challenge could become even more difficult. If those additional problems don’t occur, I hope, with a lot of innovation and efficiency, to preserve key programs and services. Clearly, though, we have to prepare for a grim budget. Our emphasis will be on maintaining the excellent delivery of key services to our citizens while controlling costs and taxes.”
Following is the full text of the County Executive’s budget requirements.
# # #
DATE: May 22, 2003
TO: Appointed and Elected Department Heads
FROM: Kathleen M. Falk
Dane County Executive
RE: 2004 Executive Budget Requirements
This memo provides 2004 Executive Budget requirements that departments must follow when developing their budgets for my consideration. The Department of Administration will be issuing more detailed technical instructions in the coming weeks and will notify you when your electronic budget files are available.
The 2004 Executive Budget Requirements take into account, of course, the significant State revenue reductions now under deliberation by State policy makers. Although many details of the State’s budget could change through the course of these deliberations by July, the requirements that follow reflect my judgement that the State reductions will be considerable and will dramatically impact many important County programs. In fact, the cuts contained in the Governor’s proposed budget and the action of the Joint Finance Committee to date may not represent the “worst case” scenario for the County as the State Legislature considers additional policies (such as freezing county and municipal property tax levies at 2003 levels and/or reducing shared revenue even further).
The Governor’s proposed biennial budget contains cuts totaling $1.4 million in 2003 and over $5 million in 2004. The 2003 reduction is composed of two primary components. The first is a $800,000 reduction in Intergovernmental Transfer (IGT) revenue for the Badger Prairie Health Care Center. IGT revenue is intended to offset the losses we incur at Badger Prairie when the actual cost of providing care exceeds revenue from other sources. The second significant component is a $400,000 cut in shared revenue. As you know, shared revenue is one source of the County’s general purpose revenue that is used to fund a range of County programs and services. The Governor’s Office has stated that this cut was an error and hopes to correct the error through the Joint Finance Committee. Due to these potential reductions, I imposed an operating capital freeze, a 10% LTE spending reduction, and a variety of savings in the Human Services Department that, when combined, are estimated to save over $1.6 million. Each of these actions will be reviewed as new and more certain information on the budget becomes available. If final action by the Legislature on the Governor’s Budget Bill is worse for the second half of 2003, additional steps may be needed.
For 2004, the proposed cuts are much more considerable. As of today by virtue of the Governor’s proposed budget and/or the actions by the Joint Finance Committee, the cuts include: reductions in IGT revenue of $2.1 million, a shared revenue reduction of over $2 million, funding reductions in the County’s W-2 program of approximately $1.4 million, a $300,000 reduction in the Income Maintenance program, and a $400,000 cost increase to cover juvenile corrections rate increases. The net impact of these cuts alone is over $6 million, which does not include many smaller cuts that are also included in the budget bill such as a $75,000 cut in Community Aids and a $23,700 cut for World Dairy Expo. The reductions grow to over $7 million if the Governor’s proposal to gain more federal Medicaid fails. Also, this estimate does not include other reductions that will negatively impact the County but are not quantifiable at this time such as proposed cuts in the District Attorney and Public Defender offices. Also, this does not include costs the county will bear as a result of program changes in the State, such as the decrease in state staff to arrange the adoption of difficult to place children; this change means that more children will probably stay on the foster care system run by the County and which costs about $12,000 per child per year. In addition, this estimate does not include increased cost of living for existing county staff positions, caseload increases in any county program, and other cost increases that will occur in 2004, such as increased food costs to house inmates or compliance with the living wage ordinance.
Although the State revenue reductions are significant, other negative, external economic influences will add to the fiscal challenge faced by the County in 2004. Slow economic growth will likely impact several major revenue sources. Sales tax growth was adjusted down to 4.5% in 2003 from 5% in 2002. The more conservative estimate reflected a very cautious view of consumer spending, but it may not compensate for persistent economic weakness that may continue into 2004. As the State reduces its workforce and other macroeconomic events influence the local economy, negative trends may set in to the otherwise resilient Dane County economy. In that case, the sales tax growth projection for 2004 will likely be lower than the 2003 increase.
Slowing economic growth has been combined with historically low rates of inflation and interest. While low interest rates have stimulated refinancing and, therefore, document recording revenue collected by the Register of Deeds, these low rates have negatively impacted interest income in the Treasurer’s Office. In 2002, document recording fees were $1,058,620 higher than they were in 2001 while interest income was $2,007,000 below the amount collected in 2001. Assuming these trends continue in 2003 and are projected to continue in 2004, budgeted amounts will have to be reduced to reflect this activity.
The revenue challenges noted above will make meeting regular costs to continue difficult in 2004. For example, the County is obligated to pay approximately $2 million more in debt service in 2004 to support principal and interest payments on outstanding general obligation bonds for capital projects such as the new Justice Center, highway construction projects, the conservation fund, and mandatory hardware replacement for the 911 Center. Liability insurance is also expected to cost approximately $300,000 more in 2004. Our sustained high rate of population growth insures that the demand for county-provided services continues to increase. These expenditure pressures are not extraordinary. The County faces similar expenditure pressures each year. The difference for 2004 is the magnitude of the State Budget cuts on County programs, services, and revenue.
The external pressures of the State budget require a more austere approach to budgeting in 2004. The requirements that follow represent a significant departure from previous years when the focus of budget decisions was on additions to the previous year’s base budget. For 2004, departments will be given a target budget amount which is less than the base budget for the previous year, and department heads will be responsible for making recommendations to me on how that target can be met. In some cases, this will mean streamlining procedures to maximize efficiency while in others it may mean reductions in the type and levels of service and/or increasing revenue. Your budget task at this early stage of the process is to give me your best recommendations on how your department will operate with less money than it received this year.
You must adhere to the following requirements. The Department of Administration will return budgets that do not comply with these requirements.
2003 Budget Plans
· The Department of Administration has completed 2003 Budget projections. Departments that are projected to exceed their budgeted appropriations must submit plans to curb the rate of current expenditures and/or reduce other expenditures or increase revenues to compensate for the projected overages. The Department of Administration will be issuing a letter to these departments with more detailed instructions.
GPR Reductions
· Each department will be given a General Purpose Revenue reduction to apply to program expenditures in 2004. Departments must make expenditure and/or revenue adjustments to meet this reduction. Departments do not need to adjust personnel services lines to address potential compensation changes.
The reductions were calculated by distributing certain State revenue reductions and certain costs-to-continue to all GPR funded departments. Other State revenue reductions were isolated to the department in which they occurred (e.g. Department of Human Services). The distribution to GPR funded departments is based on the proportion of general purpose revenue allocated to each in 2003. At this time it makes sense for County departments to plan how to deal with approximately $12 million in cuts and increased costs. This amount may change in light of final state budget action, more updated predictions of economic activity, and other factors.
GPR Reduction Compliance Plans
· Unlike 2003 when departments were asked to submit a spending reduction plan after the budget was adopted, departments are now required to reallocate the GPR reductions to specific line items when budgets are submitted to the Department of Administration for review. The line item adjustments could be either expense reductions or revenue enhancements.
The line item adjustments should be described in a GPR Reduction Compliance Plan that is submitted in conjunction with your budget. The spending reduction plan should describe the programmatic impacts of making the line item adjustments to your budget.
No GPR Funded Operating Capital
· No operating capital requests funded with new general purpose revenue will be allowed. Operating capital may be requested using a reallocation of funds from any line item except personal service line items. Any reallocations that are made in 2004 will be restored to the original line items in 2005. They will not be zeroed out in the 2005 base budget.
No GPR Funded Positions
· No new position requests funded with County general purpose revenue funds will be allowed except through reallocations of already-authorized County positions.
Personal Services Appropriations and Budget Controls
· Starting in 2004, separate personal services appropriations will exist for each program. The personal services appropriation will include all salary and benefit line items including LTE, overtime, etc.
· At the department level, the personal services appropriation will have to be managed as a distinct appropriation. This means that savings from vacant positions cannot be used to offset spending in other operating expense and contractual expense lines. Conversely, when personal services spending is expected to exceed budgeted amounts, a transfer from another appropriation will be required. Some of these transfers will require approval by the County Executive while others, such as those between programs, will require Personnel and Finance Committee approval. Using more detailed appropriation categories may also require departments to redistribute funds during budget time to minimize the need to seek transfers.
· The Department of Administration will be issuing more detailed policies and procedures before the beginning of the 2004 budget year. In addition, I have directed DOA to develop additional budget control policies that can be applied to spending that has historically exceeded budgeted amounts.
Budget Process
· Due to the increased complexity of this budget, the Department of Administration will be offering additional technical support. Each department will be assigned a staff member from DOA to assist with budget development and the composition of the GPR Reduction Compliance Plans.
· As we do every year, I will hold budget meetings with each department head after the receipt of budget requests to the Department of Administration. My office will be contacting you to schedule your meeting.
· The Budget Office will offer technical training again this year for staff who are new to their budget development responsibilities or for those who need a refresher. Training will be held in June 2003.
This budget will be the most difficult to plan and implement which you and I have worked on. I greatly appreciate your help and cooperation as we work together to prepare the 2004 budget. The best way to serve our taxpayers and our employees is to work together with as much energy, cooperation, and imagination as we can muster.
Thank you.
cc: Dane County Board of Supervisors